* By Esfandyar Batmanghelidj

It’s been a surprisingly short time in coming. It was only last September that Federica Mogherini, the European Union’s high representative for foreign affairs, announced that the European parties to the Iranian nuclear deal—formally known as the Joint Comprehensive Plan of Action—would establish a special purpose vehicle (SPV) to “assist and reassure economic operators pursuing legitimate business with Iran,” giving them a route around secondary sanctions imposed by the Trump administration.

Just four months later, France, Germany, and the United Kingdom are ready to launch the much-anticipated SPV, a first-of-its-kind state-owned trade intermediary. It will initially facilitate what French Foreign Minister Jean-Yves Le Drian has described as trade in “essential goods”—mostly European exports of food and medicine to Iran. These, although not technically sanctioned by the US, have been restricted by the reluctance of European banks to facilitate payments for fear of American retribution.

The SPV, called INSTEX, or Instrument in Support of Trade Exchanges, is registered in France with a German managing director. It will take some months to become operational, but its registration marks an important milestone in the European effort to counterbalance US economic power.

The surprising speed with which the SPV was established reflects a sense of urgency in Europe for an assertion of greater economic independence from the US. The French treasury played a leading role in devising the SPV, working closely with the French, German, and British foreign ministries and in consultation with the European Commission. Shortly after Trump’s withdrawal from the nuclear deal last May, French Finance Minister Bruno Le Maire spoke of a “realization among all European states that we cannot keep going in the direction we are headed today whereby we submit to American decisions.”

European determination was underlined in the speech by German Chancellor Angela Merkel last week at the World Economic Forum. Observing that “you can only leave an international footprint if you are economically strong,” she pointed to US sanctions on Iran, which hinge on “the strength of the dollar as a currency.” Merkel then asked the questions that have for some time been reverberating in European capitals: “How can we in the eurozone become as dominant? How can we arrange it so that we have economic weight on the scales?”

Underlying these questions are European fears of President Donald Trump’s increasingly capricious attitude toward international agreements. Merkel’s likely successor, Annegret Kramp-Karrenbauer, told Bloomberg that “the way in which at least the American administration makes policy in general at the moment, with a lot of sanctions, with the fact that international agreements are scrapped, is not a good way to cooperate.”

European officials increasingly see the transatlantic rift over Iran sanctions as a harbinger of other, more significant crises, which can only be avoided if the EU is able to counterbalance US economic power and the primacy of the dollar in international finance. Among other things, Germany worries that the Trump administration may deploy secondary sanctions against Russia, jeopardizing the Nord Stream 2 gas pipeline in particular, and EU-Russia trade more generally.

In December, the European Commission released a report entitled “Towards a Stronger International Role of the Euro,” which cites the sanctions on Iran and “recent challenges to the international rules-based governance and trade” as key justifications for strengthening the role of the euro in global trade and finance. One of the envisioned benefits is “stronger autonomy of European consumers and businesses, allowing them to pay or receive payments for their international trade... with reduced exposure to legal actions taken by third-country jurisdictions, like extraterritorial sanctions.”

The SPV is the first new institution established as part of this European push to increase its economic sovereignty. The Trump administration is skeptical that the SPV will work. Sigal Mandelker, the US Treasury’s top sanctions official, has said she isn’t worried “at all” that European companies will be able to sidestep sanctions. While Iran is hoping European companies will eventually be able to use the SPV for a wider range of goods and services, it is far from clear they will take such risks.

Even if the mechanism is limited to facilitating trade in non-sanctionable goods, it could nonetheless prove foundational. As former US State Department official Jarrett Blanc has warned, the experience of establishing the SPV “will teach its managers lessons that can be applied to other cases in the future.” Richard Nephew, an architect of the Iran sanctions during the Obama administration, and former Treasury Secretary Jacob Lew have warned the Trump administration’s use of “economic power in aggressive and counterproductive ways… could eventually lead to the development of new strategies for working around US policy.” The SPV may only be the thin end of the wedge.

The above article by Esfandyar Batmanghelidj was published on bloomberg.com on January 31.

* Esfandyar Batmanghelidj is the founder of Bourse & Bazaar, a media company that supports business diplomacy between Europe and Iran through publishing, events and research.